Crunch will fuel outsourcing

Recession-hit councils look to outside suppliers

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Local government expert Tony Travers has predicted that the recession will lead to much more outsourcing, in some cases involving all services provided by organisations.

"There will be a major move to outsource services to save money," the director of the LSE London research centre told the Society of IT Management's national conference at Stoneleigh Park in Warwickshire on 23 April 2009.

If attempts by some councils to outsource large parts of their functions succeed, "almost every authority in the country will be inexorably pulled" towards this model, he said.

Travers added that this trend is likely to involve different kinds of organisations in an area, such as primary care trusts and police forces, outsourcing services jointly. "It's hard this morning not seeing this occurring," he said.

Travers told the Socitm event that the exact model of outsourcing would depend on suppliers, but he expects it may be far reaching, perhaps involving 'management buyouts' where existing executives join suppliers.

"A market will emerge, and that mature market will include consortia of providers taking over the whole of what an authority manages," he said, noting that Essex County Council's attempt to outsource many of its functions was given as a case study by the Treasury in documents released with this week's Budget.

He painted a dismal picture of public sector finances over the next decade, referring to an article this week in The Times by Audit Commission chief executive Steve Bundred discussing the possibility of an "Armageddon scenario", in which the government was unable to find lenders to finance its debt. "I think that word, strong though it is, isn't far from the truth," Travers said.

He predicted that schools and the NHS may see cash increases of 2-3% in funding over the next few years, adding "that's for the favoured parts of the public sector. For the rest of the public services, there will be enormous pressure".

He predicted that local authorities could see no real term increase in their income "for 10 years at least", with council tax capping tightened to increases of 1-2% a year and zero grant increases from central government. However, he said that the current spending review settlement, which runs to 2010-11, looks "generous" given zero inflation.

Travers said the recession will produce increased demand for some services, but other factors are increasing costs. These include: those of childcare, as a result of Lord Laming's second review of the sector; more elderly people requiring a range of services; increasing healthcare costs; public sector organisations being encouraged to pay suppliers faster by government; and local authorities receiving less income from fees, charges and investments.

Local authorities may also want to take advantage of low property prices to buy land, either for planned buildings or as investments, creating further pressure on budgets.

Balancing these factors will require major savings elsewhere, Travers said, adding that the cuts required will be greater than those imposed during the 1980s: "Mrs Thatcher will be seen as a guiding light of an expansion in public services. How the world moves on."